Tax Fraud, Identity, and Check Cashing

Tax Fraud, Identity, and Check-Cashing

August 26, 2016

AML, BSA, and FinCEN

Since the Bank Secrecy Act (BSA) of 1970, anti-money laundering efforts and financial regulation continue to progress and have even found new traction in recent years. The Financial Crimes Enforcement Network (FinCEN) is still the authority on the matter and continues to introduce new rules to meet the changing atmosphere of the financial industry. The BSA requires companies to comply with AML efforts.  Money laundering is defined as a three-part process: first the “dirty” money is placed into the traditional financial system, then it is layered or moved around to cloud its illegal origin, and finally it is fully integrated and returned to the criminal in the form of “clean” money.  In addition, FinCEN and its ancillary bodies author financial regulation to combat other forms of fraud and illegal financial activity- such as check-fraud and illusive digital currency activities. As technology (hello, smartphone) speeds full steam ahead, these regulatory bodies are working to stay out in front of the game- and the criminals.

Fraudulent Check-Cashing, FinCEN, and Biometric Identification

One not-so-obvious form of financial fraud is the filing of fake tax returns using stolen identification.  Earlier this summer, FinCEN issued a Geographic Targeting Order (GTO) in South Florida to put pressure on check cashers by enforcing tougher customer identification requirements.  The GTO was handed down during the off-season and aims to prevent tax fraud during the quieter months, when criminals assume they can slide between the cracks unnoticed. (FinCEN)The GTO requires check cashers in Miami-Dade and Broward counties to obtain and record additional identifying information about customers cashing tax refund checks over $1,000. This includes a copy of the customer’s identification, a digital photograph of the customer taken at the time of the transaction, the customer’s phone number, and in accordance with Florida law, the customer’s thumbprint.

In January 2015, NCC had the foresight to determine that NCC clients would be mandated to purchase a POS system with Remote Capture software that would collect all pertinent information on a person cashing a check such as a picture, thumb print, phone number and check imagery right at their store. All NCC clients were notified in January 2015 that it was obligatory to purchase the Remote Capture software and “go live” by June 1, 2015 at all NCC client locations.  In doing so, NCC has demonstrated its ability to remain ahead of the industry requirements by implementing the Point of Sale/Remote Capture Software requirement prior to State and Federal mandates.

Edward D’Alessio, executive director of the Financial Service Centers of America has been quick to defend the check cashing industry and “took umbrage with the IRS for singling out the check-cashing industry when the agency itself regularly issues fraudulent refund checks without verifying claims — and then takes so long to pursue offenders.”  However, he also supports the move and notes “It’s a burden we will comply with [and] if it helps keep the bad guys out of our [business], it helps our industry.” (Miami Herald)

As these new regulations are adopted, they will have an impact beyond Federal tax returns.  In order to reduce fraudulent activity and increase compliance and efficiency, the entire industry is slowly embracing advanced identification techniques. Start-ups are rushing in to meet the global demand for biometric identification systems. From the US to Kenya, check-cashers and money transfer operators are implementing advanced fraud checkpoints to catch criminals.  In Somalia, Western Union cut ties with local money service businesses over AML-related terrorism funding fears. To keep check-cashers in business, a native Liban Egal is developing a biometric POS system to help check-cashers track where their money ends up on the receiving end. This identification system will potentially assuage the fears of banks outside of Somalia over terrorist funding. (Reuters)

The future of compliance

Beyond Somalia terrorist-funding and US tax fraud, these POS identification systems will help businesses remain compliant with ever-changing AML/BSA regulations.  For check-cashers and money transfer operators, streamlined identification technology will not only help businesses prevent fraud, it will make it easier to persecute criminals who leave their stores with cash.  As it stands now, check cashers get hit twice when individuals commit successful fraud. First, they pay out the fraudulent cash or transfer funds, then they spend time and money helping authorities catch the crooks. Fingerprint technology will help detectives and agents catch the bad guys– and this is actually one part of the motivation behind South Florida GTO.

At NCC, we commit ourselves to knowing the burdens and challenges that our check cashing banking clients face on a day to day basis. By staying ahead of the regulation curve, we keep our clients up and running smoothly with minimal stress or interruption as new rules are mandated.  Additionally, our redundant msb banking services take away one of the largest variables of the business– the indiscriminate de-risking by banks as they vie to stay compliant and steer clear of expensive fines.

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